Millions of people enjoy hobbies that are also a source of income. From catering to cupcake baking, crafting homemade jewelry to glass blowing — no matter what a person’s passion, the Internal Revenue Service offers some tips on hobbies.

Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies.

Here are five IRS tax tips to consider.

1. Is it a Business or a Hobby? A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Consider nine factors when determining whether an activity is a hobby. Make sure to base the determination on all the facts and circumstances. For more about ‘not-for-profit’ rules, see IRS Publication 535, Business Expenses.

2. Allowable Hobby Deductions. Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses. Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.

4. How to Deduct Hobby Expenses. Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See IRS Publication 535 for the rules about how to claim these on Schedule A, Itemized Deductions.

Source: IRS Small Business Week Tax Tip 2017-04

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Small business owners that offer goods and services through an online platform may be part of the sharing economy. Some participate part time while others operate full time. Activities such as ride sharing, freelancing, renting a spare bedroom and crowd funding are usually taxable.

Some sharing economy tips for small businesses to consider:

1. Taxes. Sharing economy activity is generally taxable. Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS.Tips. People often conduct sharing-economy activities electronically but tips in cash are still a common occurrence. Tips are generally subject to withholding. Small businesses or self-employed persons should report tips they receive as income on Schedule C.

2. Large Cash Amounts. Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.

3. Deductions. Expenses to carry on a trade or business are usually deductible. Examples include claiming the $.54 cents per mile rate for 2016 when using a car for a ride-sharing business. Or deducting the commission/fee charged by a freelancer marketplace service.

4. Estimated Payments. Small businesses in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. Form 1040-ES, Estimated Tax for Individuals, will help to figure these payments. IRS Direct Pay is the fastest and easiest way to make these payments. The Treasury Department’s (EFTPS) system is also an option.

5. Records. Good records assist in monitoring a business’s progress, tracking deductible expenses and can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis to keep your records up-to-date.

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Here’s another tip for small business owners during Small Business Week. The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:

• The extent of the worker’s investment in the facilities or tools used in performing services.
• The extent to which the worker makes his or her services available to the relevant market.
• How the business pays the worker.
• The extent to which the worker can realize a profit or incur a loss.

2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:

• Written contracts describing the relationship the parties intended to create
• Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay.
• The permanency of the relationship.
• The extent to which services performed by the worker are a key aspect of the regular business of the company.
• The extent to which the worker has unreimbursed business expenses.

For more information on deciding whether your worker should be classified as an employee or independent contractor, please call our office today.

Source: Small Business Week Tax Tip 2017-02

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

National Small Business Week for 2017 runs from Sunday, April 30 through Saturday, May 6. During this time, the Internal Revenue Service will promote many online products to help small business owners and those who are self-employed understand their tax responsibilities.

Here are just a few among dozens of useful IRS products in the spotlight for this year’s National Small Business Week that can be found at http://www.irs.gov:

1. Sharing Economy Tax Center. This special webpage provides fast answers to tax questions, as well as links and forms for the sharing economy. People who use one of the many online platforms to engage in this type of business, such as renting a spare bedroom, providing car rides or providing many other goods or services, are involved in the sharing economy. Topics include filing requirements, rules for home rentals and business expenses.

2. Self-Employed Individuals Tax Center. Taxpayers will find the Self-Employed Individuals Tax Center to be a great resource for sole proprietors and others who are in business for themselves. This site has many handy tips and references to tax rules a self-employed person may need to know. In addition to many other subjects, taxpayers will find information on:

• How to Make Quarterly Payments.
• Requirements for Information Returns.
• How to File an Annual Return.
• Business Structures.
• Qualified Joint Ventures

3. Small Business and Self-Employed Tax Center. This online information center features links to a wealth of useful tools, including Small Business Taxes: The Virtual Workshop and common IRS forms with instructions. Find help on everything from how to get an Employer Identification Number online to how to engage with the IRS during an audit. The IRS Tax Calendar for businesses and Self-Employed is a convenient, at-a-glance resource designed to show key tax dates for businesses.

For more information about how these IRS products relate to your business, please call our office today.

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Business travel meals and entertainment expenses are deductible if your business trip is overnight or long enough so that you need to stop for sleep or rest to perform your duties. Meal expenses are also deductible if the meals is business-related entertainment, such as taking a customer to an educational or sporting event if business is discussed.

Deducting travel meal expenses can be calculated by either of the following methods:

1. The actual cost. If you use this method, you must keep records of your actual costs such as lodging, meals, taxi, airfare, bus, tolls, and tips.

2. The standard meal allowance, which is the Federal meals and incidental expense (M&IE) per diem rate. You can find the per diem rates by location at gsa.gov. The lower rates listed apply for the first and last days of travel.

The deduction for unreimbursed business meals is subject to a 50% limitation.

For more information, please call our office today.

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial performance analysis, management, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

One of the advantages of operating your own business is that you can hire your child to work in the business.

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are NOT subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are NOT subject to Federal Unemployment Tax Act (FUTA) tax. Payment for the services of a child ARE subject to income tax withholding, regardless of age.

Wages paid must always be reasonable for the work performed. Also, a timesheet must be kept to document all hours worked.

The wages for the services of a child ARE subject to income tax withholding as well as Social Security, Medicare, and FUTA taxes if he or she works for:

1. A corporation, even if it is controlled by the child’s parent;

2. A partnership, even if the child’s parent is a partner, unless each partner is a parent of the child; or

3. An estate, even if it is the estate of a deceased parent.

For more information, please call our office today.

If you have questions about starting, growing, protecting, reducing business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can advise you on how to start, manage, grow, and terminate a small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Eligible small employers may be entitled to a tax credit of ranging from 35% to 50% of their contribution toward employee health coverage. This credit is available for two consecutive tax years. An eligible small employer must have:

1. No more than 25 full-time equivalent employees during its tax year.

2. Employees who have average annual wages of no more than $51,800 for 2016.

3. A qualifying arrangement in effect that requires the employer to contribute at least 50% of the health insurance premiums.

Tax-exempt organizations may also qualify for the credit. The credit is refundable for tax-exempt employees but is limited to the amount of the tax-exempt employer’s payroll taxes withheld during the calendar year in which the taxable year begins. The credit for tax-exempt organizations can range from 25% to 35% of employer contributions.

This tax credit must be calculated annually on Form 8941, Credit For Small Employer Health Insurance Premiums, and must be attached to the business tax return.

For more information, please call our office today.

If you have questions about starting, growing, protecting, reducing business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can advise you on how to start, manage, grow, and terminate a small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.